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IRD explains what constitutes a “simple loan of money” and a “money-lending” business
In the recently published minutes of the 2023 annual meeting between the Inland Revenue Department (IRD) and the Hong Kong Institute of Certified Public Accountants, the IRD stated its views on what constituted a “simple loan of money” and a “money-lending” business.
The “provision of credit test” would determine the source of interest income derived from a “simple loan of money” whereas in other cases the “operation test” would be the default position. Given that generally an “intra-group financing” business would not be willing to lend to “all and sundry”, such business would not constitute a “money-lending” business. As such, an unrecoverable loan lent by an “intra-group financing” business would unlikely qualify for tax deduction as a bad debt under section 16(1)(d) of the Inland Revenue Ordinance.
Clients who have any questions on determining the source of interest income and whether a bad debt expense can be claimed should contact their tax executives.